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RSSGoogle is of course the 800-lb gorilla of search and any discussion of what's wrong in the online ad economy must start with it. There are really only two factors that keep Google's money machine (and those of the many companies that have organized themselves around it) pumping cash like a Saudi oil well: first, the willingness of thousands of marketers to spend sizeable amounts of money to rent keywords in order to acquire qualified customers, plus the willingness of hundreds of thousands of publishers to participate in Google's Adsense network in exchange for a share of this revenue.
Search Ecosystem or Search Wasteland?
The mistake that most online ad pundits make when they analyze the future of search is that they focus on the macro picture without addressing what's going on at the micro level. From a macro perspective -- from 30,000 feet above the search ecosystem -- everything looks green and wonderful. From these lofty heights, the migration of dollars from untargeted analog media to targeted digital media can be clearly observed, and it's an inspiring picture.
It's only when you zoom down and focus on the many individual "trees" and other fauna in this ecosystem that one can see that they're suffering from blight. Some of them are already dead. The online pundits don't see any of this because they rarely talk to the marketers who collectively keep this ecosystem alive. They might talk a lot with other pundits, but you'll rarely find them spending time with the people who actually pay Google's bills. This is why my perspective is different -- I actually spend time with a large cross-section of prospective clients, and if you think that things are just hunky-dory with them, you need to roll your airplane down a couple thousand feet.
Wall Street Isn't Main Street
Let's be frank. The marketers who are paying Google's bills have grown plenty tired of hearing how accountable search is, how wonderful search as a DR medium is, how easy it is to achieve acceptable conversion rates, and how they just need to spend more to get better results. I won't go so far as to suggest that a rebellion will happen tomorrow, but I'll tell you this: many of these marketers are operating on razor-thin margins, a good share of them are just barely hanging on, and the moment that any competitor comes along and offers them even a slightly better deal on the clicks they rent, they'll bolt like jackrabbits.
I'll tell you something else: these people react very differently from the rest of us whenever another cute story comes out about the fact that Google's founders are adding another Boeing 767 to their toy collection or reserving private islands for their nuptial joy fests (I'd tell you what these marketers say here, but there may be children in the audience). And who can blame them? After all, after they total up their click rental costs at the end of the day, they're barely breaking even!
The Brand Guys Are Apoplectic
But angry desperation among Ma & Pa e-tailers and other small outfits that supply Google with a good share of its billions isn't the end of it. The big brand guys are furious too, because Google effectively forces them to rent back the brand names they invested billions in over decades in order to avoid the inevitable confusion that occurs when Google blithely sells these same terms to others (a practice that Google strictly forbids on its own branded terms).
The courts will ultimately decide whether this practice (and all of Google's revenue derived from branded term searches) is OK or, as the complaint alleges, an unconscionable policy that "hijacks" consumers to competing sites. In the meantime, the big brand guys that Google depends upon for its future growth aren't just angry: they're fighting mad and have enough lawyers to keep Google busy until the year 2050.
The Big Squeeze?
Finally, there are the publishers. Many report that even as their traffic and click-through rates have steadily increased in the past six months, their Adsense revenue has plateaued and even declined. You can't exactly blame these guys for embracing the latest conspiracy theory to make its way around the Web, which is that Google squeezed them in the last quarter to meet Wall Street's expectations. Or for whispering the once unspeakable thought that maybe Microsoft isn't such an evil company after all.
Google needs all of these groups -- small firms and big ones -- to keep going. It may not know it, but it needs them more than it needs Wall Street's approval, and it needs to do much more to keep their willingness to work with Google alive.
Nobody really wants Google to take a hard fall, and nobody wants to see a healthy online ecosystem turn into a toxic Superfund site. The former hasn't happened yet, but my concern is that the latter process is already well underway, and this bodes ill for all of us who work in search.
RSS FEEDS
AdWords isn't exactly the holy grail it was made out to be and I have continually looked for better ways to spend that money - namely traditional marketing offline and direct advertising/sponsorship online.
I know that I am not in a small group when I say that there must be something better than AdWords.
Keyword search is a commodity product and prices will come down as more competitive options evolve...and most keyword ads should not be auctioned because keywords are only semi-unique; there is very often another word that can be substituted and millions of keywords that go unpurchased - why doesn't Google or Yahoo sell keywords with no demand and bargain rates?
I couldn't agree more that we the market is ripe for disruption - just not clear if anyone is poised to be the disruptor.
I hope that advertisers are hearing you - there is a huge opportunity for them to buy media directly from smaller publishers who rely in whole or in part on AdSense for revenue. Existing ad networks pay pitiful amounts ($1 CPM?! Come ON!), and smaller publishers don't have a lot of choices when it comes to building advertising supported sites.
I know of NO publisher that wouldn't drop AdSense in a heartbeat for a truly viable alternative. Unfortunately, I know it is difficult for larger companies to buy from hundreds of small publishers - whoever can step in and create a system that works will make a fortune and hopefully do what we all want to see happen - take a bite out of the big G. :)
I tend to agree with the bubble bursting doomsday scenario EXCEPT for what I think are important exceptions that may not be factored all the way in to your formula:
#1 - I would agree with Sherwin above except I don't see another entity out there healthy enough and large enough to force the BIG SWITCH. Neither MSFT or Yahoo have what it takes to force the switch at least not right away imo. Maybe over time they will start to chip away at GOOG, but not in the short term. Maybe GOOG will meet its match the same way MSFT met their match - in the world courts over matters of antitrust, but that is a years long process not an overnight bursting process....
#2 - if online search has these issues, I think it is safe to assume that there would be similar accompanying issues in the analog offline traditional world. One could speculate that these off-line implosions (e.g. TV advertising) would tend to help the online world by sending more budget to the online side and lessen the impact of the bursting.
#3 - I feel, rather than think/analyze, that there are just too many people in this Web 2.0 space who were wounded by the dotcom crash and lived to tell about it, that are still around with cool heads. I don't feel the same frenzied excitement in this 2.0 space that I did in the 1.0 space. So I think less frenzied excitement = less abrupt bubble bursting. There needs to be some air let out of this bubble but I don't think it will go all at once.....
keep it up! - always a good read! my .02 JB
you're right. One has disentangle the reality from the hype. And of course its not just Google that's benefitting from the hype.
Google's current valuation is $14 million per employee. But at least they have a business model that's generating revenue and margin. Can the same be said about the Web 2.0ers.
I was interveiwed by CNN last Friday. Essentially they wanted a comment of Google's OpenSocial project and particularly the tie up with MySpace. Essentially my more sanguine comments regarding the need the demonstrate advertising conversion was missed from the broadcast. Whilst I believe social networking has a role to play in both branding and sales activities, unlike straightforward pay per click it has a tenuous link with customer search.
I am in agreement with you on Google and Search. However the ecosystem must also include the ad agencies as well. The agencies will put the ads in Google Adsense but at the same time create unmanageable rules for the publishers to work with them directly.
Example… I have at least ten times this year alone said they will not run a sweepstakes on Sweepstakes Today because – “All they (the members) want is to enter the sweep.� This reason is very hollow and is born out of myth instead of fact. My members buy well over 99 percent of they consumer and even high priced durable goods. There are other publisher issues which are making it difficult for publishers and do not pertain to sweepstakes or promotions.
Publishers need the support of not just the Google’s but of all parties in the online ad business. Does Google understand this? I am starting to think no. But then again, Google is not really causing the trouble.
So in the big picture of the “bubble� or “big trouble�, I think it is already there.
Craig McDaniel
He went from having enough money to buy a house in Old Town, Virginia outright, to struggling to pay some margins.
Here is the message, when you start saying to yourself, "It is ludacris how much these stocks are worth!" it is time to evaluate what is happening in the market. Did anyone really need to buy diapers online or pet food for that matter. I think the lack of a sock puppet dog as anything other than a one-hit wonder cultural image answers that question.
Do marketers really think they are going to make millions by invading teenagers online sanctuary - does the phrase 'jump the shark' mean anything to you? When the ads appear, the cool factor drops.
Why do big businesses try to keep chasing teenagers? I guess it is the same reason middle aged men by sports cars and hit on 20-year-old girls. It is nice to be the cool one in the room and feel young again.
Just don't forget the caveat - if it doesn't kill you from trying to keep up with a crowd you shouldn't be running with.